GBP/USD reached the low of November 2020 today, plunging to 1.3009 – the level it held during the COVID-19 crisis. The coronavirus is no longer in the headlines – geopolitical factors are the main issue that worry market players at this point. Furthermore, the pound is facing additional pressure in the run-up to the March meeting of the Bank of England. The regulator is expected to raise interest rates again. However, even if such a hike takes place, it will only briefly boost the pound sterling.
Today, the pair approached 1.3000. Bearish traders did not try testing 1.2900, however – GBP/USD slid down steadily and slowly compared to last week. Earlier, the pair dived by 600 pips as USD went up and GBP declined amid rising risk-off sentiments in the markets. Hawkish expectations are not enough to help GBP/USD recover – the market is under influence of panic. The fundamentals favor a continuing GBP/USD downtrend. Any upward corrections could be used for opening short positions.
Tomorrow's UK labor market data could trigger such an upward correction, followed by the release of BoE monetary policy summary on Thursday. The UK statistics data is expected to be positive, allowing bullish traders to regain some ground. Unemployment is projected to fall to 4.0%, decreasing for an 11th straight month and indicating recovery. The average earnings index is expected to rise to 4.6% including bonus payments and 3.7% otherwise. However, the claimant count change data is forecasted to rise by 20,000, compared to a decrease by 30,000 in the previous report. The number of claims has been falling for the past 11 months.
However, even if all data releases turn out to be positive, opening long positions will not be a good idea. Risk-off sentiments continue to dominate the market, and the US dollar's position remains strong. Furthermore, tomorrow's unemployment and income data are for January – February's unemployment data should reflect negative tendencies.
All retracements of GBP/USD this week should be viewed as a continuation of the current downtrend. Even if the Bank of England raises the interest rate, it will give only short-term support to GBP. Furthermore, some experts even see a 50-point increase amid growing price pressure and soaring commodity prices. However, even this hike will not reverse the pair. While the war in Ukraine remains in the headlines, USD will enjoy additional support as a safe haven asset. All other fundamental events would remain in the background.
Considering long positions in this situation is very risky, even if the pair seems to be about to rally. Hawkish expectations, which previously pushed the pound sterling up, fail to have any effect on it now. GBP remains vulnerable, and it is following the US dollar.
GBP/USD still has downside potential. The pair is between the middle and lower lines of the Bollinger Bands indicator at all timeframes except MN. The first support level is at 1.3000 - the lower line of the Bollinger Bands at the daily chart. If risk-off sentiment continues, bears would push the pair down towards 1.2900 – the lower boundary of the Kumo cloud at the monthly chart, which matches the lower line of the Bollinger Bands at the same timeframe.